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Should You Be an Employee or an Independent Contractor?

Should You Be an Employee or an Independent Contractor?

More and more employees are finding themselves in the uncomfortable predicament of having their employer treating them as independent contractors. There are a number of reasons why this would be advantageous to an employer, but it puts the worker at a significant disadvantage.  Here is how you can tell whether your employer is misclassifying you as an independent contractor, and why that should be a concern.

Employer Advantages to Independent Contractors

First let's look at why an employer would prefer to have you as an independent contractor rather than an employee. Misclassifying employees as independent contractors is a strategy that is used for avoiding having to pay employment taxes and benefits. It also eliminates legal responsibility for any negligence that may be attributed to you.

Worker Advantages to Being an Employee

As an employee, you are only responsible for paying your portion of Medicare taxes and FICA, where as an independent contractor you would be viewed as being self-employed, and therefore would have to pay a higher tax rate. You are also able to qualify for benefits that your employer offers if you are an employee. This may include health and life insurance, retirement or disability benefits, and vacation and sick time.

How to Tell If You Have Been Misclassified as an Independent Contractor

Though there are certain advantages to being self employed, that is a choice that you should make for yourself. When your employer misclassifies you as an independent contractor it is for their own benefit. The first sign of this is generally that your employer will ask you for a W-9, or will issue you a 1099-MISC form instead of the W-2 form that would indicate that taxes have taken out on your behalf. Employers are required to withhold certain taxes from their employees' pay and to match them. These funds are to be sent to the government on a regular basis.

When they disregard or deny your status as an employee, it puts you in the position of having to pay the full amount of taxes – yours and theirs. It also enables them to avoid having to pay other required taxes and keeps them from having to provide workers' compensation coverage for you.

What Can You Do?

There are certain distinctions that the government uses to determine whether a person is an employee or an independent contractor. One of the most important factors that they look at is whether the individual controls their own work and follows their own directions or whether they take their directions and schedule from the employer. Another key distinction lies in whether the individual works for just one entity or whether they provide services to others. If the latter, then they are considered to be a contractor, but if the former then they are an employee.

If you suspect that your employer is misclassifying you, the IRS provides a number of different remedies for resolution. You can start by filling out form SS-8 and submitting it to the IRS. This acts as a request for clarification as to your status. The agency will look at the information you have provided and make a decision as to whether your tax liability is that of an independent contractor or an employee. If you have questions, seek out professional help.

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Karen C. Drescher, CPA, CGMA

Karen C. Drescher, CPA, CGMA

Whether it is helping a individual or a Georgia small business with their taxes, or offering to be a backstop through their difficulties, Karen is always there for her clients. When you are a client of Karen's, she always tries to make you feel comfortable in a casual and friendly environment.

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